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Corporate Business

Damages from the Parent Company against the Spanish subsidiary

Spanish Supreme Court. Judgement of 11 December 2015. 

The group’s interest is not absolute and cannot justify damage to the subsidiary company, which would be an unjustified loss for the creditors and external partners of the subsidiary. The director of the subsidiary company that performs an action that damages the company that it manages is not discharged of liability due to the mere fact of said action having been approved by the head of the shareholder group. The director cannot hide behind the instructions received from the unitary management of the group that the company he directs belongs to.

Clearly, the existence of a group of companies implies that when there are conflicts of interest between the group and the specific interest of one of its companies, must seek a reasonable balance between different interests, that is between the interest of the group and the special social interest of each subsidiary company, making efficient and flexible operation of the business unit as a group of companies possible, but in turn prevents the plundering of subsidiaries and the unnecessary harm to its social interest, such as to protect external partners and creditors of any type, public, commercial or employment."

The argument of the interest of the group and the allegation of the benefits that, in abstract, means the integration into a corporate group, if not accompanied by a reasonable and adequate justification that the director's actions are also beneficial to the subsidiary, not excluding direct damages which the director must cover.

Spain: Governance of companies

The Law 31/2014, of December 4, regarding the new rules for Governance of companies came into force in Spain in 2015. These rules impose on the Board specific periodical obligations. The most important of which are as follows:

1. The Board must determine the general policies and strategies of the Company.

2. It must have a written contract with the Managing Directors and those empowered to whom it has granted executive powers.

3. It must monitor the work of the said Managing Directors and those empowered.

4. The Board of Directors must meet at least once every three months (presential meeting are not necessary).

A Secretary must be appointed (not necessarily member of the Board). This person will be responsible for preparing minutes, keeping them filed and presenting them annually in pdf (signed by the Directors) to the Commercial Registry.

The other task of the Secretary of the Board is the notarization of the Minutes that have to be effective before third parties (e.g., Banks, Public Administration).